SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1997
Commission File No. 1-3660
Owens Corning
One Owens Corning Parkway
Toledo, Ohio 43659
Area Code (419) 248-8000
A Delaware Corporation
I.R.S. Employer Identification No. 34-4323452
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes / X / No / /
Shares of common stock, par value $.10 per share,
outstanding at March 31, 1997
53,263,731
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Quarter Ended
March 31,
1997 1996
(In millions of dollars,
except share data)
NET SALES $ 875 $ 849
COST OF SALES 652 632
Gross margin 223 217
OPERATING EXPENSES
Marketing and administrative expenses 122 127
Science and technology expenses 17 21
Other 7 (3)
Total operating expenses 146 145
INCOME FROM OPERATIONS 77 72
Cost of borrowed funds 19 18
INCOME BEFORE PROVISION
FOR INCOME TAXES 58 54
Provision for income taxes (Note 3) 19 16
INCOME BEFORE EQUITY
IN NET INCOME OF AFFILIATES 39 38
Equity in net income of affiliates 3 1
NET INCOME $ 42 $ 39
NET INCOME PER COMMON SHARE
Primary net income per share $ .79 $ .75
Fully diluted net income per share $ .76 $ .73
Weighted average number of common
shares outstanding and common equivalent
shares during the period (in millions)
Primary 53.5 52.3
Assuming full dilution 58.1 56.9
The accompanying notes are an integral part of this statement.
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31,December 31,
1997 1996
ASSETS (In millions of dollars)
CURRENT
Cash and cash equivalents $ 13 $ 45
Receivables 425 314
Inventories (Note 4) 430 340
Insurance for asbestos litigation
claims - current portion (Note 7) 75 100
Deferred income taxes 106 106
VEBA trust 11 19
Income tax receivable 4 4
Other current assets 43 30
Total current 1,107 958
OTHER
Insurance for asbestos litigation
claims (Note 7) 439 454
Deferred income taxes 457 474
Goodwill 301 286
Investments in affiliates 66 64
Other noncurrent assets 182 155
Total other 1,445 1,433
PLANT AND EQUIPMENT, at cost
Land 57 58
Building and leasehold improvements 615 614
Machinery and equipment 2,382 2,384
Construction in progress 268 285
3,322 3,341
Less--Accumulated depreciation (1,767) (1,819)
Net plant and equipment 1,555 1,522
TOTAL ASSETS $ 4,107 $3,913
The accompanying notes are an integral part of this statement.
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
March 31,December 31,
1997 1996
(In millions of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 633 $ 705
Reserve for asbestos litigation claims -
current portion (Note 7) 275 300
Short-term debt 114 96
Long-term debt - current portion 22 20
Total current 1,044 1,121
LONG-TERM DEBT 1,099 818
OTHER
Reserve for asbestos litigation claims
(Note 7) 1,600 1,670
Other employee benefits liability 339 349
Pension plan liability 61 63
Other 158 161
Total other 2,158 2,243
COMPANY OBLIGATED CONVERTIBLE
SECURITY OF SUBSIDIARY HOLDING
SOLELY PARENT DEBENTURES (MIPS) 194 194
MINORITY INTEREST 26 21
STOCKHOLDERS' EQUITY
Common stock 647 606
Deficit (1,035) (1,072)
Foreign currency translation adjustments (7) (1)
Other (19) (17)
Total stockholders' equity (414) (484)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 4,107 $3,913
The accompanying notes are an integral part of this statement.
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Quarter Ended
March 31,
1997 1996
(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income $ 42 $ 39
Reconciliation of net cash provided
by operating activities:
Noncash items:
Provision for depreciation and
amortization 37 33
Provision for deferred income taxes 17 -
Other (1) 1
(Increase) decrease in receivables (107) (67)
(Increase) decrease in inventories (91) (51)
Increase (decrease) in accounts
payable and accrued liabilities (59) (68)
Increase (decrease) in accrued
income taxes (11) 48
Proceeds from insurance for asbestos
litigation claims 40 30
Payments for asbestos litigation claims (95) (35)
Other (19) (37)
Net cash flow from operations (247) (107)
NET CASH FLOW FROM INVESTING
Additions to plant and equipment (74) (77)
Investment in subsidiaries, net of
cash acquired (Note 6) (20) -
Proceeds from the sale of affiliate - 55
Other (5) (6)
Net cash flow from investing $ (99) $ (28)
The accompanying notes are an integral part of this statement.
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
Quarter Ended
March 31,
1997 1996
(In millions of dollars)
NET CASH FLOW FROM FINANCING
Net additions to long-term credit facilities $ 257 $ 98
Other additions to long-term debt 28 -
Other reductions to long-term debt (2) (12)
Net increase in short-term debt 17 41
Dividends paid (3) -
Other 19 2
Net cash flow from financing 316 129
Effect of exchange rate changes on cash (2) 1
Net increase (decrease) in cash
and cash equivalents (32) (5)
Cash and cash equivalents at
beginning of period 45 18
Cash and cash equivalents at end
of period $ 13 $ 13
The accompanying notes are an integral part of this statement.
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended
1. SEGMENT DATA March 31,
1997 1996
(In millions of dollars)
NET SALES
Industry Segments
Building Materials
United States $ 500 $ 470
Europe 74 64
Canada and other 31 24
Total Building Materials 605 558
Composite Materials
United States 138 150
Europe 97 108
Canada and other 35 33
Total Composite Materials 270 291
Intersegment sales
Building Materials - -
Composite Materials 27 25
Eliminations (27) (25)
Net sales $ 875 $ 849
Geographic Segments
United States $ 638 $ 620
Europe 171 172
Canada and other 66 57
Total 875 849
Intersegment sales
United States 29 17
Europe 9 8
Canada and other 22 21
Eliminations (60) (46)
Net sales $ 875 $ 849
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Quarter Ended
1. SEGMENT DATA (Continued) March 31,
1997 1996
(In millions of dollars)
INCOME FROM OPERATIONS (1)
Industry Segments
Building Materials
United States $ 37 $ 15
Europe 5 5
Canada and other 4 (4)
Total Building Materials 46 16
Composite Materials
United States 40 32
Europe 7 19
Canada and other 2 3
Total Composite Materials 49 54
General corporate expense (18) 2
Income from operations 77 72
Cost of borrowed funds (19) (18)
Income before provision
for income taxes $ 58 $ 54
Geographic Segments
United States $ 77 $ 47
Europe 12 24
Canada and other 6 (1)
General corporate expense (18) 2
Income from operations 77 72
Cost of borrowed funds (19) (18)
Income before provision
for income taxes $ 58 $ 54
(1)Income from operations for the quarter ended March 31,
1996 includes a pretax gain of $37 million from the sale
of the Company's interest in its former Japanese
affiliate Asahi Fiber Glass Co. Ltd. and charges
totaling $42 million including valuation adjustments
associated with prior divestitures, major product line
productivity initiatives and a contribution to the Owens-
Corning Foundation. The impact of these special items
was to reduce income from operations for Building
Materials in the United States, Europe, and Canada and
other by $19 million, $1 million and $2 million,
respectively; Composite Materials in the United States
and Europe by $3 million and $2 million, respectively;
and also reduce general corporate expense by $22
million.
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. GENERAL
The financial statements included in this Report are
condensed and unaudited, pursuant to certain Rules and
Regulations of the Securities and Exchange Commission, but
include, in the opinion of the Company, adjustments
necessary for a fair statement of the results for the
periods indicated, which, however, are not necessarily
indicative of results which may be expected for the full
year.
In connection with the condensed financial statements and
notes included in this Report, reference is made to the
financial statements and notes thereto contained in the
Company's 1996 Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission.
3. INCOME TAXES
The reconciliation between the U.S. federal statutory rate
and the Company's effective income tax rate is:
Quarter Ended
March 31,
1997 1996
U.S. federal statutory rate 35% 35%
Adjustment of deferred tax asset
allowance (12) (13)
State and local income taxes 2 2
Other 8 6
Effective tax rate 33% 30%
During the first quarter of 1996, the Company reversed
approximately $7 million of its valuation allowances on the
operating loss carryforwards of a foreign subsidiary as
management determined that the loss carryforwards would be
realizable. In 1997, the Company reversed the remaining $7
million valuation allowance on this loss carryforward.
4. INVENTORIES
Inventories are summarized as follows:
March 31, December 31,
1997 1996
(In millions of dollars)
Finished goods $ 338 $ 273
Materials and supplies 176 149
FIFO inventory 514 422
Less: Reduction to LIFO basis (84) (82)
$ 430 $ 340
Approximately $276 million and $216 million of FIFO
inventories were valued using the LIFO method at March 31,
1997 and December 31, 1996, respectively.
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. CONSOLIDATED STATEMENT OF CASH FLOWS
Cash payments for income taxes, net of refunds, and cost of
borrowed funds are summarized as follows:
Quarter Ended
March 31,
1997 1996
(In millions of dollars)
Income taxes $ 6 $ (17)
Cost of borrowed funds 13 6
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
6. ACQUISITIONS
During the first quarter of 1997, the Company completed
acquisitions in the Building Materials segment, one in
Europe, the other in the U.S. and an acquisition in the U.S.
Composite Materials segment. The aggregate purchase price
including possible subsequent contingent consideration was
$49 million. These 1997 acquisitions exchanged 340,000
shares of the Company's common stock and $20 million in
cash.
These acquisitions were accounted for under the purchase
method of accounting, whereby the assets acquired and
liabilities assumed have been recorded at their fair values
and the results of operations of the acquisitions have been
included in the Company's consolidated financial statements
subsequent to the acquisitions' dates.
The purchase price allocations were based on preliminary
estimates of fair market value and are subject to revision.
The 1997 acquisitions include goodwill of $20 million, which
is being amortized over 40 years. The pro forma effect of
the acquisitions was not material to net income for the
quarters ended March 31, 1997 and 1996.
7. CONTINGENT LIABILITIES
ASBESTOS LIABILITIES
The Company is a co-defendant with other former
manufacturers, distributors and installers of products
containing asbestos and with miners and suppliers of
asbestos fibers (collectively, the "Producers") in personal
injury and property damage litigation. The personal injury
claimants generally allege injuries to their health caused
by inhalation of asbestos fibers from the Company's
products. Most of the claimants seek punitive damages as
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. CONTINGENT LIABILITIES (Continued)
well as compensatory damages. The property damage claims
generally allege property damage to school, public and
commercial buildings resulting from the presence of products
containing asbestos. Virtually all of the asbestos-related
lawsuits against the Company arise out of its manufacture,
distribution, sale or installation of an asbestos-containing
calcium silicate, high temperature insulation product,
the manufacture of which was discontinued in 1972.
Status
As of March 31, 1997, approximately 159,200 asbestos
personal injury claims were pending against the Company, of
which 7,000 were received in the first quarter of 1997. The
Company received approximately 36,400 such claims in 1996
and 55,900 in 1995.
Many of the recent claims appear to be the product of mass
screening programs and not to involve malignancies or other
significant asbestos related impairment. The Company
believes that at least 40,000 of the recent claims involve
plaintiffs whose pulmonary function tests (PFTs) were
improperly administered or manipulated by the testing
laboratory or otherwise inconsistent with proper medical
practice, and it is investigating a number of testing
organizations and their methods. In 1996 the Company filed
suit in federal court against the owners and operators of
certain pulmonary function testing laboratories in the
southeastern U.S. challenging such improper testing
practices. This matter is now in active pre-trial discovery.
In January 1997, the Company filed a similar suit in federal
court in Mississippi naming the owner of an additional
testing laboratory.
During 1996 the Company was engaged in discussions with a
group of approximately 30 leading plaintiffs' law firms to
explore approaches toward resolution of its asbestos
liability. The discussions involved the possible resolution
of both pending claims and claims that may be filed in the
future. The law firms involved in the talks agreed to
refrain from serving any further asbestos claims on the
Company unless they involved malignancies. This agreement
expired as to certain of the firms on November 1, 1996, and
as to other firms, representing a substantial majority of
the cases historically filed by the group, on January 1,
1997. This agreement may have impacted the number of cases
received by the Company during 1996 and the first quarter of
1997.
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. CONTINGENT LIABILITIES (Continued)
Through March 31, 1997, the Company had resolved (by
settlement or otherwise) approximately 188,900 asbestos
personal injury claims. This number includes cases resolved
by two orders of dismissal for lack of medical proof,
covering approximately 18,900 federal maritime cases which
named Owens Corning as a defendant, resulting in a 15,600
case reduction in the backlog after reduction for duplicate
cases and cases previously settled. Of these cases,
approximately 11,700 were dismissed in 1996, with the
remaining 3,900 being dismissed in the first quarter of
1997. During 1994, 1995 and 1996, the Company resolved
approximately 60,600 asbestos personal injury claims, over
99% without trial, and incurred total indemnity payments of
$626 million (an average of about $10,300 per case).
The Company's indemnity payments have varied considerably
over time and from case to case, and are affected by a
multitude of factors. These include the type and severity
of the disease sustained by the claimant (i.e.,
mesothelioma, lung cancer, other types of cancer, asbestosis
or pleural changes); the occupation of the claimant; the
extent of the claimant's exposure to asbestos-containing
products manufactured, sold or installed by the Company; the
extent of the claimant's exposure to asbestos-containing
products manufactured, sold or installed by other Producers;
the number and financial resources of other Producer
defendants; the jurisdiction of suit; the presence or
absence of other possible causes of the claimant's illness;
the availability or not of legal defenses such as the
statute of limitations or state of the art; whether the
claim was resolved on an individual basis or as part of a
group settlement; and whether the claim proceeded to an
adverse verdict or judgment.
Insurance
As of March 31, 1997, the Company had approximately $289
million in unexhausted insurance coverage (net of
deductibles and self-insured retentions and excluding
coverage issued by insolvent carriers) under its liability
insurance policies applicable to asbestos personal injury
claims. This insurance, which is substantially confirmed,
includes both products hazard coverage and primary level non-
products coverage. Portions of this coverage are not
available until 1998 and beyond under agreements with the
carriers confirming such coverage. All of the Company's
liability insurance policies cover indemnity payments and
defense fees and expenses subject to applicable policy
limits.
In addition to its confirmed primary level non-products
insurance, the Company has a significant amount of
unconfirmed potential non-products coverage with excess
level carriers. For purposes of calculating the amount of
insurance applicable to asbestos liabilities, the Company
has estimated its probable recoveries in respect of this
additional non-products coverage at $225 million, which
amount was recorded in the second quarter of 1996. This
coverage is unconfirmed and the amount and timing of
recoveries from these excess level policies will depend on
subsequent negotiations or proceedings.
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. CONTINGENT LIABILITIES (Continued)
Reserve
The Company's financial statements include a reserve for the
estimated cost associated with asbestos personal injury
claims. This reserve was established principally through a
charge to income in 1991 for the costs of asbestos claims
expected to be received through 1999 and an additional $1.1
billion non-recurring, noncash charge to income (before
taking into account the probable non-products insurance
recoveries) during the second quarter of 1996 for cases that
may be received subsequent to 1999. In establishing the
reserve, the Company took into account, among other things,
the effect of federal court decisions relating to punitive
damages and the certification of class actions in asbestos
cases, the discussions with the group of plaintiffs' law
firms referred to above, the results of its continuing
investigations of medical screening practices of the kind at
issue in the federal PFT lawsuits, recent developments as to
the prospects for federal and state tort reform, the
continued rate of case filings at historically high levels,
additional information on filings received during the 1993-
1995 period and other factors. The combined effect of the
$1.1 billion charge and the $225 million probable additional
non-products insurance recovery was an $875 million charge
in the second quarter of 1996.
The Company's estimated total liabilities in respect of
indemnity and defense costs associated with pending and
unasserted asbestos personal injury claims that may be
received in the future, and its estimated insurance
recoveries in respect of such claims, are reported
separately as follows:
March 31,December 31,
1997 1996
(In millions of dollars)
Reserve for asbestos
litigation claims
Current $ 275 $ 300
Other 1,600 1,670
Total Reserve 1,875 1,970
Insurance for asbestos
litigation claims
Current 75 100
Other 439 454
Total Insurance 514 554
Net Asbestos Liability $1,361 $1,416
The Company cautions that such factors as the number of
future asbestos personal injury claims received by it, the
rate of receipt of such claims, and the indemnity and
defense costs associated with asbestos personal injury
claims, as well as the prospects for confirming additional
insurance, including the additional $225 million in non-
products coverage referenced above, are influenced by
numerous variables that are difficult to predict, and that
estimates, such as the Company's, which attempt to take
account of such variables, are subject to considerable
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. CONTINGENT LIABILITIES (Continued)
uncertainty. The Company believes that its estimate of
liabilities and insurance will be sufficient to provide for
the costs of all pending and future asbestos personal injury
claims that involve malignancies or significant asbestos-
related functional impairment. While such estimates cover
unimpaired claims, the number and cost of unimpaired claims
are much harder to predict and such estimates reflect the
Company's belief that such claims have little or no value.
The Company will continue to review the adequacy of its
estimate of liabilities and insurance on a periodic basis
and make such adjustments as may be appropriate.
Management Opinion
Although any opinion is necessarily judgmental and must be
based on information now known to the Company, in the
opinion of management, while any additional uninsured and
unreserved costs which may arise out of pending personal
injury and property damage asbestos claims and additional
similar asbestos claims filed in the future may be
substantial over time, management believes that any such
additional costs will not impair the ability of the Company
to meet its obligations, to reinvest in its businesses or to
take advantage of attractive opportunities for growth.
NON-ASBESTOS LIABILITIES
Various other lawsuits and claims arising in the normal
course of business are pending against the Company, some of
which allege substantial damages. Management believes that
the outcome of these lawsuits and claims will not have a
materially adverse effect on the Company's financial
position or results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(All per share information in Item 2 is on a fully diluted
basis. All references to results from ongoing operations
exclude the impact of special items reported for the
relevant period.)
RESULTS OF OPERATIONS
Net income for the quarter ended March 31, 1997 was $42
million, or $.76 per share, compared to net income of $39
million, or $.73 per share, for the quarter ended March 31,
1996. The 1997 earnings growth reflects the benefits of
acquisitions and productivity gains experienced in the
Building Materials segment and the improved performance of
our unconsolidated affiliates.
Net sales were $875 million for the quarter ended March 31,
1997, a three percent increase from the 1996 level of $849
million. Most of the first quarter 1997 growth is
attributable to increased volumes in the Building Materials
segment, where niche acquisitions and the integration of
their products into the Company's existing channels of
distribution continue to grow the Company's volumes both in
the U.S. and Europe. These volume increases were offset in
part by decreasing volumes in the Composite Materials
segment, particularly in the U.S., coupled with a worldwide
decline in Composite Materials pricing. Gross margin for
the quarter ended March 31, 1997 was 26%, the same as in
first quarter 1996.
Marketing and administrative expenses were $122 million for
the quarter ended March 31, 1997, compared to marketing and
administrative expenses from ongoing operations of $119
million in the same period in 1996. The slight increase is
the result of incremental administrative expenses from
acquisitions.
Results for the first quarter of 1996 included a $37 million
pretax gain from the sale of the Company's minority interest
in Asahi Fiber Glass Co. Ltd. in Japan and several one-time
special charges, including valuation adjustments associated
with prior divestitures, major product line productivity
initiatives and a contribution to the Owens-Corning
Foundation. The impact of the gain on net income was
reduced to near zero by these special items.
In the Building Materials segment, sales increased eight
percent for the quarter ended March 31, 1997 compared to
1996. This growth reflects the incremental sales from
acquisitions (which have been supported by the Company's
existing channels of distribution) as well as an increase in
volume, particularly in the roofing and specialty and foam
businesses. Income from ongoing operations for Building
Materials increased 21% from 1996 levels, climbing from 7%
to 8% of sales, primarily the result of productivity gains
and incremental amounts derived from acquisitions.
During the first quarter of 1997, the Company acquired
Polypan Nord S.P.A., a manufacturer of extruded polystyrene
foam (XPS) insulation products based in Italy. This
acquisition further expands the Company's presence in the
Building Materials segment, particularly the XPS foam
business, and will help to reinforce the Company's brand
identity established in Europe. Also in the first quarter
of 1997, the Company acquired Falcon Manufacturing of
California, Inc., a U.S. producer of expanded polystyrene
(EPS) foam insulation products. The EPS manufacturing
acquisition supports the Company's overall growth agenda and
complements the Company's line of energy-efficient rigid
foam insulation products.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The Shanghai, China insulation plant, which produces glass
fiber insulation materials for thermal and acoustical
applications, shipped its first product in March. This
represents the Company's second glass fiber insulation plant
in China, following the 1996 startup of our first insulation
plant in Guangzhou.
In the Composite Materials segment, sales decreased seven
percent for the quarter ended March 31, 1997, versus the
first quarter of 1996. The sales decline is attributable to
pricing weakness in Europe, along with customer inventory
adjustments and increased competition in the U.S. Composite
Materials income from operations in the first quarter of
1997 experienced a 17% decline when compared to income from
ongoing operations for the first quarter of 1996. The
decline is primarily attributable to the pricing weakness
being experienced in Europe as well as lower U.S. volumes.
For the balance of 1997, the Company does not expect the
Composite Materials segment to improve significantly over
the first quarter.
In the first quarter of 1997, the Company completed the
previously announced acquisition of Knytex Company, a
manufacturer of specialty glass fiber fabrics. This
business, which knits, weaves, stitches or bonds glass fiber
to provide value-added performance characteristics, will be
combined with the Company's existing European specialty
fabrics business to form Owens Corning Fabrics.
The Company's cost of borrowed funds for the quarter ended
March 31, 1997 was $1 million higher than during first
quarter 1996, due to increased borrowings used to fund
working capital increases.
LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS
Cash flow from operations, excluding asbestos-related
activities, was negative $192 million for the first quarter
of 1997, compared to negative $102 million for first quarter
1996. The decline from 1996 to 1997 is primarily
attributable to the collection of a tax receivable in 1996
and increased growth in inventories and receivables in 1997.
Inventories at March 31, 1997 increased 26% over December
31, 1996 levels due to the Company's seasonal inventory
build in the first half of the year as well as higher
inventories due to a slower than anticipated building
materials retail sector and a slowdown in the composites
business. Please see Notes 4 and 5 to the Consolidated
Financial Statements.
At March 31, 1997, the Company's net working capital was $63
million and its current ratio was 1.06, compared to negative
$163 million and .85, respectively, at December 31, 1996.
The increase in 1997 is the result of increased working
capital, driven by higher inventories and receivables as
discussed above, as well as a decline in accounts payable
and accrued liabilities.
The Company's total borrowings at March 31, 1997 were $1.235
billion, $301 million higher than at year-end 1996.
Typically, the Company reports greater cash usage during the
first half of the year as the Company builds inventories and
other working capital.
As of March 31, 1997, the Company had unused lines of credit
of $195 million available under long-term bank loan
facilities and an additional $171 million under short-term
facilities, compared to $440 million and $195 million,
respectively, at year-end 1996. The decrease in available
lines of credit is primarily the result of increased
borrowings. Letters of credit issued under the Company's
long-term U.S. loan facility, most of which support appeals
from asbestos trials, reduce the available credit of that
facility. The impact of such reduction is reflected in the
unused lines of credit discussed above.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Capital spending for property, plant and equipment,
excluding acquisitions and investments in affiliates, was
$74 million during the first quarter of 1997. For the year
1997, the Company anticipates capital spending, exclusive of
acquisitions and investments in affiliates, to be
approximately $250 million, the majority of which is
uncommitted. The Company expects that funding for these
expenditures will be from the Company's operations and
external sources as required.
Gross payments for asbestos litigation claims during the
first quarter of 1997, including $11 million in defense
costs and $3 million for appeal bond and other costs, were
$95 million. Proceeds from insurance were $40 million,
resulting in a net pretax cash outflow of $55 million, or
$33 million after-tax. During the first quarter of 1997,
the Company received approximately 7,000 new asbestos
personal injury cases and closed approximately 5,700 cases.
Over the next twelve months, the Company's total payments
for asbestos litigation claims, including defense costs, are
expected to be approximately $275 million. Proceeds from
insurance of $75 million are expected to be available to
cover these costs, resulting in a net pretax cash outflow of
$200 million, or $120 million after-tax. Please see Note 7
to the Consolidated Financial Statements.
The Company expects funds generated from operations,
together with funds available under long and short term bank
loan facilities, to be sufficient to satisfy its debt
service obligations under its existing indebtedness, as well
as its contingent liabilities for uninsured asbestos
personal injury claims.
The Company has been deemed by the Environmental Protection
Agency (EPA) to be a potentially responsible party (PRP)
with respect to certain sites under the Comprehensive
Environmental Response, Compensation and Liability Act
(Superfund). The Company has also been deemed a PRP under
similar state or local laws, including two state Superfund
sites where the Company is the primary generator. In other
instances, other PRPs have brought suits or claims against
the Company as a PRP for contribution under such federal,
state or local laws. During the first quarter of 1997, the
Company was not designated a PRP in such federal, state,
local or private proceedings for any additional sites. At
March 31, 1997, a total of 39 such PRP designations remained
unresolved by the Company, some of which designations the
Company believes to be erroneous. The Company is also
involved with environmental investigation or remediation at
a number of other sites at which it has not been designated
a PRP. The Company has established a $17 million reserve
for its Superfund (and similar state, local and private
action) contingent liabilities. Based upon information
presently available to the Company, and without regard to
the application of insurance, the Company believes that,
considered in the aggregate, the additional costs associated
with such contingent liabilities, including any related
litigation costs, will not have a materially adverse effect
on the Company's results of operations, financial condition
or long-term liquidity.
The 1990 Clean Air Act Amendments (Act) provide that the EPA
will issue regulations on a number of air pollutants over a
period of years. Until these regulations are developed, the
Company cannot determine the extent to which the Act will
affect it. The Company anticipates that its sources to be
regulated will include glass fiber manufacturing and asphalt
processing activities. The EPA's announced schedule is to
issue regulations covering glass fiber manufacturing by late
1997 and asphalt processing activities by late 2000, with
implementation as to existing sources up to three years
thereafter. Based on information now known to the Company,
including the nature and limited number of regulated
materials it emits, the Company does not expect the Act to
have a materially adverse effect on the Company's results of
operations, financial condition or long-term liquidity.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
FUTURE REQUIRED ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings per Share (SFAS No.128). This statement introduces
new methods for calculating earnings per share. The
adoption of this standard will not impact results from
operations, financial condition, or long-term liquidity, but
will require the Company to restate earnings per share
reported in prior periods to conform with this statement.
The Company is required to adopt the new standard for
periods ending after December 15, 1997. The Company
believes that the adoption of this standard will result in
slightly higher earnings per share when comparing the
current fully diluted earnings per share calculation to the
calculation of diluted earnings per share required by SFAS
No. 128.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the paragraphs in Note 7, Contingent Liabilities, to the
Company's Consolidated Financial Statements above, which are
incorporated here by reference.
ITEM 2. CHANGES IN SECURITIES
(a) None of the constituent instruments defining the rights
of the holders of any class of the Company's registered
securities was materially modified in the quarter ended
March 31, 1997.
(b) None of the rights evidenced by any class of the
Company's registered securities was materially limited or
qualified in the quarter ended March 31, 1997 by the
issuance or modification of any other class of securities.
(c) On January 15, 1997, the Company issued a total of
49,999 shares of its common stock, par value $.10 per
share, as part of final contingency payments to the
sellers under several 1995 agreements pursuant to which
the Company acquired certain of the operations of its
Western Fiberglass business. On March 28, 1997, the
Company issued 340,000 shares of its common stock in
connection with the acquisition from the sellers of
substantially all of the operations of Falcon
Manufacturing of California, Inc. and Falcon Foam
Plastics, Inc. Such shares were issued without
registration under the Securities Act of 1933 in reliance
upon Regulation D promulgated under the Securities Act or
the exemption provided by Section 4(2) of the Securities
Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) During the quarter ended March 31, 1997, there was no
material default in the payment of principal, interest,
sinking or purchase fund installments, or any other
material default not cured within 30 days, with respect
to any indebtedness of the Company or any of its
significant subsidiaries exceeding 5 percent of the total
assets of the Company and its consolidated subsidiaries.
(b) During the quarter ended March 31, 1997, no material
arrearage in the payment of dividends occurred, and there
was no other material delinquency not cured within 30
days, with respect to any class of preferred stock of the
Company which is registered or which ranks prior to any
class of registered securities, or with respect to any
class of preferred stock of any significant subsidiary of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during
the quarter ended March 31, 1997.
ITEM 5. OTHER INFORMATION
The Company does not elect to report any information under
this item.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See Exhibit Index below, which is incorporated here by reference.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the quarter ended March 31, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
OWENS CORNING
Registrant
Date: April 30, 1997 By: /s/ David W. Devonshire
David W. Devonshire
Senior Vice President and
Chief Financial Officer
(as duly authorized officer)
Date: April 30, 1997 By: /s/ Steven J. Strobel
Steven J. Strobel
Vice President and Controller
- 22 -
EXHIBIT INDEX
Exhibit
Number Document Description
(3) Articles of Incorporation and By-Laws.
(i) Certificate of Incorporation of Owens
Corning, as amended (filed herewith).
(ii) By-Laws of Owens Corning, as amended
(incorporated herein by reference to Exhibit (3)
to the Company's annual report on Form 10-K (File
No. 1-3660) for 1995).
(11) Statement re Computation of Per Share Earnings
(filed herewith).
(27) Financial Data Schedule (filed herewith).